If you read the book called 'Just for fun' by torvalds, you will find some details of this conversation.

Jobs had to replace the notoriously old Mac OS design, with a new kernel. He had linux and BSD as the base kernels in mind. He offered the job to Torvalds to base the new OS on Linux. Linus, though did not want to build a closed source system, no matter what was offered. So he declined. Then Jobs had to base the new OS on BSD and hired a large group of FreeBSD developers.

The kernel was just 'one' of the many parts that Jobs needed, albeit a complex one. He was more focusing on creating something 'greater than the sum of its parts'.